Statistics Canada on Friday said mortgage borrowing hit a record in the second quarter as the amount Canadians owe relative to their income climbed higher.
Despite the sales of existing homes moderating as the quarter progressed, the pace of mortgage borrowing doubled from the previous quarter, pushing up mortgage debt by a record amount as the low-interest-rate environment continued and stricter mortgage underwriting rules went into effect in June, Statistics Canada said.
At the same time, household investment in residential real estate hit record highs as new additions to the housing stock continued to climb.
Household accumulation of currency and deposits picked up the pace again after slowing considerably in the first quarter, while the investment holdings of households benefited from the persistent strength of domestic and international financial markets. The rising value of household financial assets and residential real estate contributed to an increase in household net worth of over half a trillion dollars in the quarter. Both the federal government and other levels of government continued to borrow through the issuance of bonds rather than short-term debt. Private non-financial corporations increased their demand for funds, primarily borrowing through non-mortgage loans and issuing bonds. Meanwhile, the financial sector raised its supply of funds, lending a record amount of mortgages and purchasing the majority of government bond issuances.
On a seasonally adjusted basis, household credit market debt as a proportion of household disposable income rose from 172.6% in the first quarter to 173.1%, as the 2.5% increase in household credit market debt and vigorous mortgage borrowing outweighed the growth in household disposable income (+2.2%). In other words, there was $1.73 in credit market debt for every dollar of household disposable income.
Despite the rising share of debt to disposable income, the household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, decreased from 13.45% in the first quarter to 13.32% in the second quarter, it said.
Growth in household disposable income before interest payments (+2.1%) outpaced that of total debt payments (+1.1%). Despite the continued robust mortgage borrowing, interest payments on mortgage debt edged down, while obligated payments of principal grew for the fourth quarter in a row.
The total stock of credit market debt, which includes consumer credit, and mortgage and non-mortgage loans, totalled $2.53 trillion including $1.74 trillion in mortgage debt and $797.7 billion in non-mortgage loans.
The household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, fell to 13.32% in the quarter compared with 13.45% in the first quarter.